With inflation rising and commodities uncertain in the aftermath of Russia’s invasion of Ukraine, gold is trading at its highest levels in over a year.
Last week, spot gold reached a high of $1,912 per ounce, which is the price at which gold is sold at a given time. It’s a significant increase from $1,800 per ounce at the start of February, and gold may be on the brink of breaking beyond $2,000 per ounce for just the second time in its history, after the first time in August 2020.
Despite the rise, one UBS analyst thinks it will not last. Other commodities will enter the picture.
Last week, precious metals specialists from investment banks told the media in Singapore, “We expect gold prices to fall by the end of the year.” They assume that this power will fade in the end.
The European estimates are consistent with a UBS prognosis for gold prices in 2022, which was announced in October. According to the Swiss investment bank, gold will decline in price gradually throughout the year, hitting $1,700 per ounce by the end of March, $1,650 by June, and $1,600 by the end of the year.
In its initial gold projection for the next year, UBS advised reducing tactical holdings and hedging strategic ones, but unanticipated events dominated the early months of 2022, reigniting demand for gold, and raises the question “where can I learn how to buy gold?”.
Last month, Russian President Vladimir Putin formally recognized two separatist states in eastern Ukraine and ordered troops to march into the territory, which foreign leaders saw as a prelude to a military invasion. The danger posed by Vladimir Putin in Ukraine has been the primary driver of rising gold prices.
The United States and Western European countries have already responded to Russia’s threats with a slew of sanctions and economic measures aimed at punishing Putin, one of which involves the construction of the Nord Stream 2 pipeline, a planned $11 billion natural gas link between Russia and Western Europe.
The fines have frightened investors, sending U.S. stocks skyrocketing. The Nasdaq Composite sank more than 2% on Tuesday, while the Dow Jones Industrial Average and the S&P 500 also dipped more than 1%.
During times of market volatility, gold is a safe investment and a favored asset for investors.
Because gold has a history of providing higher-than-inflation returns, it has been considered a secure alternative to hedge against rising prices and unstable stock markets during periods of high inflation, like the pandemic-induced one we are now experiencing.
Although gold’s historic position may explain the current surge in trade activity, the rate of inflation-adjusted gain has slowed in recent years, limiting its value as a long-term hedge.
According to the EU and UBS, a similar pattern will develop in the coming months: a strong but brief advance followed by a period of cooling as investors turn their emphasis to other tempting assets.
Prices will stay up as long as geopolitical concerns prevail. However, when geopolitical worries fade, we expect the gold market will revert to focusing on macroeconomic fundamentals such as real rates, Federal Reserve policy, and the economic outlook.
The Federal Reserve is expected to raise interest rates again shortly, the first of what could be a series of increases this year to tackle growing inflation. Bankers believe this will put downward pressure on gold, putting it closer to the UBS forecast.
According to several precious metals specialists, monetary tightening may not be damaging to gold. Historically, when the Federal Reserve began to raise interest rates, gold prices rose over the following 6 to 12 months. Since the 1980s, rate rises in 1986, 1999, 2004, and 2015 have all been followed by increases in gold prices, with gains of 10-20% over the subsequent six months. The two exceptions were 1983 when the price fell by over 11%, and 1994 when the price fell by 3%.
Please note that precious metals are subject to constant fluctuations in price and availability. Even after just a few days the information in this article about prices, etc., may no longer be valid.